Birmingham City Council has been criticised by the district auditor for its poor accounting and inadequate reporting of financial arrangements.
But the auditor, Mark Stocks, has still concluded that the local authority manages its finances well and continues to provide value for money.
His annual audit letter has been welcomed by Conservative council leader Mike Whitby after it praised progress on major regeneration projects like the Library of Birmingham, Longbridge and Eastside, highlighted an underspend of £16 million on last year’s budget and a 73 per cent satisfaction rate among citizens.
But Labour opposition leader Sir Albert Bore believes that the report is far from exemplary and highlighted the failure to sign off the 2010-11 accounts and fears over the future costs of both borrowing and equal pay cases.
According to the audit letter Mr Stocks found ‘‘significant difficulties’’ in agreeing accounts and identified ‘‘a number of material accounting errors’’.
He adds that the council has ‘‘difficulty’’ in valuation of property assets, financial statements also contain ‘‘material errors’’ and that ‘‘inadequate working papers were provided in key areas such as debtors, creditors, revenue funding capitalised under statute, grants, property, plant and equipment and PFI’’.
Mr Stocks concluded: “The financial statements presented for audit were materially misstated and the Council needs to take further action to strengthen its arrangements for production of its financial statements.”
Sir Albert (Lab Ladywood) said: “I find it perplexing with some of the things he says that he can then say that over all there is good performance. That is all quite damning and looking at it I am forced to ask who’s been sacked over this.”
The audit confirms that the council has £301 million liabilities over the equal pay claim issue and is negotiating with schools to pass on the risk from claims relating to school staff.
Sir Albert warned: “The council is coming to an agreement with schools where they pay back equal pay claims over a number of years. This is going to cause a lot of schools extreme hardship.”
He added that borrowing attached to major capital projects such as the Library and decent homes for all programme could cost taxpayers in the future.
According to the audit report the council’s borrowing stood at £2.3 billion in March and will increase by £222 million this financial year.
Mr Stocks said: “While I am satisfied that the level of borrowing is not currently a threat to the council’s financial resilience the level of debt is high.
"The council needs to consider carefully the current and future impact of borrowing on revenue and its ability to deliver services to local people.”
The letter offers 14 recommendations to improve performance.
Coun Whitby said: “I am encouraged by the findings contained within this year’s annual audit letter – it is an important, independent document which accurately summarises the council’s progress over the last year. It is particularly encouraging to hear that our focus on fiscal discipline is achieving positive results. As the guardian of the public purse it is vital that we spend every penny we receive – especially in tough times – as effectively as possible.
“We are fully committed to ensuring we continue to improve all aspects of our performance, and the audit letter is part of our road map which will help us to ensure this happens.”
It is the second year running that Birmingham City Council has found itself at loggerheads with Mr Stocks over its failure to produce accounts.
The auditor found “significant weakness” in the accuracy of the 2009-10 accounts. His refusal to sign the accounts cost council tax payers £60,000 for additional audit work, bringing the total bill for checking the accounts to £762,875.
He admitted that there had been some improvement, but added that there remain concerns which he will cover in a future Governance report.